Kerala HC orders ED not to summon Issac for 2 months
But the court observed that the ED can go ahead with its ongoing probe. The court also made the Reserve Bank of India (RBI) a party in the case and directed the ED to issue a notice to it, also.
The Kerala high court on Monday stayed further issuance of summons to Kerala Infrastructure Investment Fund Board (KIIFB) and former finance minister Thomas Issac for two months in connection with the enforcement directorate (ED) probe into alleged violations of the foreign exchange maintenance act while applying for masala bonds in 2019.
But the court observed that the ED can go ahead with its ongoing probe. The court also made the Reserve Bank of India (RBI) a party in the case and directed the ED to issue a notice to it, also.
A single bench of Justice VG Arun observed that though the ongoing investigation can go ahead, there was no justification for petitioners being summoned repeatedly.
“The investigation is not liable to be interdicted, there is no justification for the petitioners being repeatedly summoned by the ED. So, issuance of further summons to the petitioners shall be kept on hold for two months,” the court said.
The petition was posted for further hearing on Nov 15. The court also suo motu impleaded the RBI. Senior counsel Siddarth Dave appearing for Issac contended that the central agency kept the petitioner in the dark about real nature of allegations and offences and sent summons after summons to discredit him. The counsel appearing for KIIFB said the ED’s protracted investigation into masala bonds affected infrastructure development plans in the state.
The ED had registered a case in 2021 alleging that funds for infrastructure development was diverted and it violated FEMA norms. It later served many notices to Issac and KIIFB and both later approached the HC.
The KIIFB had raised ₹2,150 crore masala bonds in London Stock Exchange in 2019. Masala bonds are bonds issued outside India denominated in Indian rupees instead of normally preferred US dollar. In 2021, the comptroller and auditor general had questioned the move, saying masala bonds caused a liability worth several crores of rupees to the exchequer.
But the KIIFB said masala bonds were raised with the permission of the RBI and the ED has no jurisdiction to register a case against it. Both KIIFB and Issac said frequent summons were issued with mala fide intensions and obstructed the ongoing infrastructural projects carried out by the state.
The KIIFB is a special-purpose vehicle floated on the lines of a corporate body for infrastructural development of the state. All development works in major sectors like education, health care, roads and bridges, power and water supply are being carried out through KIIFB. It was floated basically to cut red tape, fix responsibility and ensure better quality in works.
After 2018 floods ravaged the state, fund-starved government had decided to tap ‘masala bonds’, which are specialised debt instruments issued outside the country in Indian denomination. In 2019, KIIFB had listed ‘masala bonds’ worth ₹2,150 crore with 9 per cent interest for five-year tenure in London Stock Exchange. KIIFB became the first sub-sovereign entity to tap this bond and the CM and a number of officials attended the bell ringing ceremony in the UK with much fanfare. Many economists also questioned the move saying when low interest rate was available KIIFB went for a higher rate of interest.